Bernanke: Don't cut too fast

The Federal Reserve’s outlook on the U.S. economy is gloomier than it was two months ago, the central bank’s chairman said Wednesday afternoon, reiterating plans to keep interest rates near zero and urging Congress not to cut federal spending by too much too fast.

At his second-ever press conference, Bernanke repeated the findings of the Federal Open Market Committee, which said in a statement earlier in the day that while “the economic recovery is continuing at a moderate pace,” it is happening “somewhat more slowly” than had been expected.

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Bernanke also urged congressional negotiators to hold off on making deep spending cuts in the short term. The effect of federal spending cuts “depends on the timing,” Bernanke said. “I have advocated that the negotiations about the budget focus on the longer term, say 10 years, which is the budget window, or even longer” if considering entitlement reform.

“In light of the weakness of the recovery, it would be best not to have sudden and sharp fiscal consolidation in the near term,” he said. “I don’t think that sharp, immediate cuts in the deficit would create more jobs.”

The central bank updated its forecast to estimate that the economy will grow by between 2.7 percent and 2.9 percent this year — down from the estimate of between 3.1 percent and 3.3 percent projected when the committee last met in April.

Signs in the labor market of a recovery have been “weaker than expected,” the committee said in his statement. “There has been improvement in the labor market, albeit not as strong as we would like,” Bernanke said.

The economy added just 54,000 nonfarm jobs in May and the unemployment rate ticked up one-tenth of a percentage point to 9.1 percent, according to data released earlier this month by the Bureau of Labor Statistics.

The Fed estimated Wednesday that the unemployment rate will be between 8.6 percent and 8.9 percent by the end of the year. By the fourth quarter of 2013, Bernanke said, the Fed expects the unemployment rate to still be high, between 7.0 percent and 7.5 percent.

The slowdown in economic growth also reflects some factors that are likely to be temporary, the committee said, including higher food and energy prices and the continued fallout from the earthquake and tsunami that hit Japan this spring.

Although economic growth has been sluggish in recent months, the committee said it anticipates “the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline.”

Nonetheless, Bernanke said, he must “acknowledge the possibility that some of the slow down is due to factors which are longer lived and will be operative still next year.” The Fed projects that growth rates will persist at a lower-than-desired level slightly above 3.0 percent.

The central bank also expects that inflation, which has stepped up in recent months, will subside in coming months.